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Rating Action:

Moody's assigns provisional ratings to senior note issued by GMACM Mortgage Loan Trust 2010-1

23 Jun 2010

New York, June 23, 2010 -- Moody's Investors Service has assigned a provisional rating of (P)A2 to one senior note with an original stated value of $166.35 million issued by GMACM Mortgage Loan Trust Series 2010-1. The senior note is supported by a subordinate certificate with an original stated value of $55.45 million, which Moody's did not rate. The transaction is backed by $222 million of mortgage loans originated and serviced by GMAC. The loans in the transaction are guaranteed by U.S. Department of Housing and Urban Development (HUD) under either the Federal Housing Authority (FHA) or the Veterans Administration (VA) insurance programs.

The complete rating actions are as follows:

Issuer: General Motors Acceptance Corporation Mortgage Loan Trust Series 2010-1

Class A, Assigned (P)A2

Class B, NR

Ratings rationale

Credit enhancement of 25% in this transaction significantly exceeds the historical cumulative losses experienced on comparable FHA/VA pools. The main driver of the relatively high credit enhancement is the stressed assumptions Moody's made with respect to future claim denials by HUD.

The vast majority of the collateral is highly delinquent and expected to default. While the level of claim denials by HUD following default has historically been low, the FHA has experienced an increase in losses on its portfolio over the past several years as its volume of insured loans has grown significantly,

Moody's believes that these rising volumes may lead HUD to scrutinize claims more rigorously. It may do so with a view to identifying servicing or underwriting defects that would serve as a basis for a claim denial. With respect to this transaction, nearly a quarter of the loans sampled as part of the third-party review are at enhanced risk of potentially having violated Truth in Lending Act provisions at the time of origination. In addition, third-party diligence performed to verify GMAC's compliance with FHA/VA servicing guidelines found several exceptions to HUD's prescribed processes.

Therefore, as detailed below, in determining the level of enhancement required to achieve the A2 rating Moody's applied stresses related to the likelihood of HUD claim denial for origination or servicer defects.

In addition to the relatively high level of credit enhancement, other credit strengths in this transaction include:

• The cash flow structure is sequential and incorporates a feature that redirects the interest payable on unrated subordinate bond towards paying principal on the senior bond.

• An independent third party performed a diligence review on a significant portion (26%) of the loans in the initial loan pool .

• The liquidating nature of the collateral shortens the expected weighted average life of the transaction.

• The transaction custodian reviewed the loan files and verified that the files were complete. Loans with incomplete documentation were removed from the transaction.

• A cash reserve of 1.25% of the Class A balance will be funded at the time of the transaction closing which will be used to cover interest shortfalls on senior notes in an event servicer is unable to advance.

• Transaction employs a simple structure with a very thick senior piece

A detailed rating analysis is contained in a Pre-sale report for this transaction and is available at Moodys.com.

Collateral Description and Analysis

The transaction is a securitization of 1,981 first lien residential mortgage loans, with an aggregate unpaid principal balance of $222 million. While 97% of the loans are insured under FHA the remainder are insured by VA. The majority of the loans have been bought out of Ginnie Mae (GNMAE) securitizations and are highly delinquent -- 82% of the pool is 60+ days delinquent.

We estimated the losses on the pool under an expected scenario and a stress scenario. The loss is estimated at 6% under an expected scenario and 28.5% under the stress scenario.

Since a vast majority of the loans in the pool are highly delinquent, we assumed that nearly the entire pool would default. The severity was estimated under three mutually exclusive scenarios, first, the claim is paid in accordance to the guidance, second, the claim is denied due to servicer error and, third, the claim is denied and the loan is found to be in violation with Truth in Lending Act (TIL-A). The final severity is a probability weighted average of the three scenarios. The probability for servicer error was estimated based on the historical denial rate experience of GMAC. The likelihood of potential TIL-A violation was estimated using third-party diligence results conducted on the sample pool. The probability of claim being paid is the remainder probability.

The severity estimate on the pool in case HUD pays the claim is on average 3.7% under the expected scenario and 9.4% under the stress scenario. The severity estimated on the pool when the claim is denied due to servicer error is 54% under the expected scenario and 82% under the stress scenario. The severity estimate on the pool in case the claim is denied and has potentially violated TIL-A is 15% for the expected scenario and 94% for the stress scenario. Although, we did not assume correlation between TIL-A violation and claim denial in the expected scenario, in the stress scenario we assumed 100% correlation between the two, leading to significantly high severity in the stress scenario as compared to the expected case.

The likelihood of denial due to servicer error was assumed to be 1.5% in the expected scenario and 8% in the stress scenario. The likelihood of potential TIL-A violation was assumed to be 12% in the expected scenario and 15% in the stress scenario.

Cash Flow Structure

The principal and interest on the transaction is always allocated sequentially to senior note and subordinate certificate. In addition, if the performance trigger is breached wherein more than 5% of the loans in the pool have greater than 15% severity, the interest payable on the subordinate certificate is used towards paying principal on the senior note. We have estimated that the performance trigger and excess spread combined provide a 3%-4% additional credit support to Class A notes. We modeled the transaction's cashflows by using SFW®, a cashflow tool developed by Moody's Analytics.

Deviations from Published Rating Methodology

Moody's used the published methodology for estimating the severity on loans under a normal scenario, i.e., FHA/VA claim is paid in accordance to the program guidelines. However, given the high proportion of potential TIL-A violations identified in the sampled due-diligence, Moody's has deviated from the methodology to incorporate the impact of potential TIL-A violations in estimating losses for both base case and stress scenarios. In addition, as losses continue to rise on its FHA portfolio, HUD may begin to scrutinize claims more rigorously with a view to minimize its payout. Hence Moody's has deviated from its methodology to incorporate the impact of claim denials from HUD in estimating losses for the trust under both scenarios.

Volatility Assumption Score

The V Score for this transaction is high, which is equal to the high score assigned for the US Sub-Prime RMBS sector. Since there is no specific V Score for the FHA-VA sector, we are utilizing the Sub-Prime RMBS sector score as a proxy. Although the delinquency performance on the FHA-VA transactions and Sub-Prime RMBS transactions are similar, the loss performance is significantly different due to FHA-VA insurance. While, the V Score of the transaction is in line with Sub-Prime RMBS sector, there are differences between the drivers of this transaction's V Score and that sector's V Score.

Since this is the first FHA-VA securitization transaction sponsored by GMAC, we do not have historical performance specific to transactions by this issuer, which increases the volatility score for this transaction. However, the disclosure of loan level data for this new issuance provides stability to the transaction. The transaction structure adds stability due to the sequential cash-flow structure between one large senior note and one subordinated certificate. However, the sensitivity of losses on the transaction to the HUD denial rate and the uncertainty regarding the denial rate assumption, increases the volatility in the ratings. Additionally, no backup servicing arrangement and the below investment grade rating of the primary servicer (GMAC) further adds volatility to the ratings. V Scores are a relative assessment of the quality of available credit information and of the degree of uncertainty around various assumptions used in determining the rating. High variability in key assumptions could expose a rating to a greater likelihood of rating changes. The V Score has been assigned accordingly to the report "V Scores and Parameter Sensitivities in the US RMBS Sector," published in April 2009.

To further discuss this rating, Moody's will hold a teleconference on Thursday, June 24, 2010 beginning at 10:00AM EDT/13:00 BST. To register and for more details please visit www.moodys.com/events

New York
Linda Stesney
Managing Director
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Aashish Marfatia
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns provisional ratings to senior note issued by GMACM Mortgage Loan Trust 2010-1
No Related Data.
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